[EAI Ukraine Issue Briefing] ③ Lessons from the Russia-Ukraine War and Prospects for the Development of Korea-Russia Relations

The Russia-Ukraine war is heading towards a ceasefire. The war is likely to end with an ambiguous compromise, leaving immense damage to both countries. It remains to be seen whether Russia will achieve the objectives it set out for its "special military operation," namely Ukraine's non-accession to the North Atlantic Treaty Organization (NATO) and its neutralization, as well as Russia's territorial claims over Crimea and the Donbas region. It is deeply regrettable that Ukraine and Russia could not find a way to avoid war, leading to a catastrophic armed conflict between Slavic nations. Even after the war ends, the conflict between the two countries is unlikely to subside easily. Once the war is over, European countries will face a choice: will the process of globalization, which surged like an unstoppable tide across all nations after the Cold War, be restored, or will they live under the shadow of a new Cold War, harsher than the previous one?

First, we will examine why Ukraine pursued Westernization, specifically its aspirations for European Union (EU) membership and NATO accession, and how its conflict with Russia has unfolded. The Soviet Union collapsed at the end of 1991, giving birth to 15 new nations, including Russia and Ukraine. Like most Eastern European countries, the Ukrainian people harbored hopes of pursuing the systems and values of the United States and Western Europe. Their desire to join the EU and NATO grew stronger. Although still bound by the framework of socialism and a planned economy, they sought a swift transition to democracy and a market economy. However, Ukrainian presidents and politicians failed to reform society and unite the nation. The direction of foreign policy swung drastically depending on whether pro-Russian or pro-Western factions held power. Nevertheless, the majority of the Ukrainian people favored Westernization.

The 2013 Euromaidan anti-government protests resulted in numerous casualties. President Yanukovych, who sought to abandon the agreement for EU accession and pivot towards pro-Russian policies, was ousted and fled to Russia. This event significantly reduced the political space for those advocating for maintaining friendly relations with Russia while living in Ukraine. It marked a turning point that drastically diminished the prospects for friendly relations and economic cooperation, including gas supply, between Ukraine and Russia.

Meanwhile, Russia, as the "eldest son" of the Soviet Union, found itself in a precarious position after its collapse in the early 1990s due to economic devastation. The nation's economy was sustained by economic aid, including food supplies, from the United States and European countries. In this context, Russia was undergoing an involuntary transition to democracy and a market economy. Gorbachev, held responsible for the collapse of the Soviet Union, was rejected by the populace. His successor, President Boris Yeltsin, clearly intended to move towards democratization and a market economy. However, due to health issues and excessive alcohol consumption, he plunged the nation into confusion. In 1998, Russia had to seek a bailout from the International Monetary Fund (IMF), leading to a severe blow to its national prestige and international standing.

Amidst this turmoil, President Vladimir Putin emerged as a charismatic leader. After being elected president in 2000, he dedicated himself to restoring Russia's tarnished image. The coincident rise in international oil prices proved to be a powerful catalyst. Since taking office, President Putin has consistently criticized and warned against NATO's eastward expansion, which he argued broke promises and threatened Russia's security, whenever opportunities arose. He expressed skepticism about the intentions behind NATO's relentless expansion, which, while ostensibly aiding Russia's transition to democracy and a market economy, seemed to position Russia as a hypothetical enemy.

Even during the Cold War, Russian gas was supplied to Western Europe via Ukraine. Ukraine benefited from transit fees and received gas at preferential prices. After the collapse of the Soviet Union, Russia proposed supplying gas to Ukraine at international market prices rather than preferential rates and demanded payment for overdue gas bills, leading to numerous disputes in gas trade between the two countries. Bilateral trade gradually declined, and normalization of relations proved elusive. Ukraine, once a constituent republic alongside Russia in the Soviet era, became a nation locked in constant conflict, not only over energy and trade but also over EU and NATO membership.

The strong support President Putin receives from Russians stems from their belief that he is a leader rebuilding a strong Russia. The Ukraine war originated from the divergence in perceptions and psychological states between Russia and Ukraine that formed after the end of the Cold War. It is regrettable that despite the mutually complementary economic structures achieved in areas such as energy and food supply, opportunities for diverse contact and consultation to overcome differences in national governance and objectives were not pursued.

Russia's primary failure was its inability to effectively control NATO's continuous expansion. Although invited to join the "Partnership for Peace" program with NATO, Russia failed to build a consensus for European security. Russia neglected multifaceted diplomatic efforts to alleviate its security concerns, while the United States and NATO member states failed to address Russia's accumulated grievances. This culminated in the annexation of Crimea and the conflict in the Donbas region in 2014. For the subsequent eight years, diplomatic efforts by both sides lacked seriousness, ultimately leading to the outbreak of the Ukraine war.

Neighboring countries are likely experiencing profound confusion regarding national security in the wake of the Ukraine war. To what extent must defense spending and military strength be maintained to deter external aggression? Can membership in a collective security system guarantee one's security? Will maintaining strong alliances resolve security issues?

Russia's invasion of Ukraine has prompted a reassessment of our own security situation. While diplomatic efforts to continue dialogue with North Korea must be pursued, robust countermeasures against North Korea's security threats towards us must also be prepared. This includes not only military responses but also supply chain assessments. Even without war, the escalating conflicts between the US and China, and between the US and Russia, are already negatively impacting our economy. The newly inaugurated administration must rectify the disorganized security posture. Based on our complete response capabilities, we must encourage North Korea's reform and openness.

Let us examine the changing international order and the urgent tasks facing European countries after the cessation of the Ukraine war. This year marks the 30th anniversary of the end of the Cold War. It may also be the first year of a new Cold War. The era of living peacefully without spending money is over. European countries must now drastically increase their defense budgets. Germany has taken the lead, deciding to increase its defense spending to over 2% of its Gross Domestic Product (GDP). Germany's rearmament has begun, signaling the prelude to conflict on the European continent.

The era of globalization, which has lasted for 30 years, has also ended. The path for transitional economies to shift to market economies appears fraught with difficulty. It is not just Russia and China that are isolating themselves; it is becoming increasingly difficult for the United States, European countries, and Asian nations to bring back countries that have retreated into their own spheres. In this context, can the world achieve carbon neutrality by 2050? Will collective action be possible if another pandemic occurs?

Another issue is the reduction of dependence on Russian gas and the expansion of imports, such as Liquefied Natural Gas (LNG) from the United States. Increased military spending appears to be an inevitable task. While negotiations for restraint in military confrontation with Russia may occur, they are unlikely in the near future. Reducing dependence on Russian gas and oil is also by no means an easy undertaking. The Dutch Title Transfer Facility (TTF) natural gas futures price surged from around $50 before the Ukraine war to $250, and is currently fluctuating around $115. This is because, although the United States has banned imports of Russian oil, gas, and coal, supplies to European countries continue normally.[1]

Increasing LNG imports from outside the European continent presents challenges related to the cost of constructing additional facilities, construction time, and import expenses. Using gas that is significantly more expensive than the price from Russia (especially the long-term contract price for Pipeline Natural Gas: PNG) will place a considerable burden on the European economy, already weakened by COVID-19. Ultimately, European countries will reduce their consumption of Russian gas but will not opt for the extreme measure of a complete cutoff. In the United States, following Democratic Party policies implemented in March 2021 after the Biden administration took office, construction of the Keystone pipeline, connecting Canada to the Gulf of Mexico, was halted.[2]

Bernie Sanders consistently opposed shale production during the primaries. Even with soaring oil and gas prices, the Biden administration is unlikely to easily ease regulations to drastically increase shale production. With international oil prices exceeding $100, ExxonMobil and Chevron announced plans to increase production in the Permian Basin by 25% and 10% respectively in 2022.[3] However, within the United States, there is a negative sentiment towards shale production due to concerns about climate change and environmental pollution. After the war ends and some time has passed, European countries and Russia will likely resume discussions on stable energy supply plans.

Now, let us consider how the newly inaugurated Yoon Suk-yeol government should lead Korea-Russia relations. Our government has dynamically pursued the development of relations with Russia since the end of the Cold War. Overcoming over 70 years of severed relations, we have expanded cooperation while sharing economic growth. The Northern Policy was pursued starting in 1990, and efforts to enhance cooperation with Russia have continued regardless of changes in government from conservative to progressive. The government has been proactive in building infrastructure for Korean businesses to operate. Agreements on economic cooperation, as well as visa exemption agreements, have been signed. Businesses have leveraged the provision of economic cooperation loans to enter the Russian market and have persistently worked to enhance brand value. Our Information Technology (IT) products have been recognized as national brands in Russia, becoming familiar brands in the hearts of the Russian people.

Until a month ago, our companies were preparing to expand cooperation, anticipating a "Russia boom." Hyundai Motor's plant in St. Petersburg was pursuing the expansion of affiliates such as KCC and Hyundai Wia, and the acquisition of General Motors' (GM) automobile plant. Joint ventures in the mobility sector with Russia's Yandex were also in full swing. Shipbuilding companies in Geoje, which had experienced severe economic downturns due to COVID-19, were anticipating a second shipbuilding boom due to the demand for LNG carriers related to the opening of Russia's Northern Sea Route. With the impending opening of the Northern Sea Route, large orders for LNG carriers are being placed, with our "Big Three" shipbuilders securing most of them. In some cases, blocks are manufactured in Geoje, transported to the Zvezda shipyard in Vladivostok, assembled locally, and delivered after test runs. In preparation for the opening of the Northern Sea Route, major hub cities are expected to emerge in Vladivostok and the Kamchatka Peninsula. Daewoo Shipbuilding & Marine Engineering has secured a contract for the construction of an LNG transshipment facility in Kamchatka. In Korea, not only Busan Port but also Donghae Port are expected to emerge as new logistics hubs. A Pan-East Sea economic zone is likely to emerge, with trade, manufacturing, fisheries, and tourism expected to flourish.

Currently, there is no momentum to initiate such discussions. However, it is anticipated that in a few months, the Ukraine war will end, opening new horizons for economic cooperation. European countries have begun to mention the possibility of lifting sanctions against Russia once the war concludes. Financial sanctions against Russia, in which our government participates, and export controls on key products will also be resolved. For the time being, our government needs to devise support measures for our companies operating in Russia that are experiencing difficulties due to production suspensions or non-payment.

Our companies did not abandon the Russian market during crises such as the 1998 economic crisis, the 2008 global financial crisis, and the economic sanctions against Russia caused by the annexation of Crimea in 2014. Our companies have established a presence by providing essential products for the daily lives of Russian citizens. Russia is a promising emerging market cultivated through the sweat and toil of our businesspeople. Economic cooperation with Russia is not something that can be discarded like old shoes overnight. It is important not to overlook the fact that the development of relations between Korea and Russia has been robustly built not only through intergovernmental cooperation but also among the people. The bonds formed between the people of both nations through academic and cultural exchanges will overcome the turmoil of war and international political instability. Even if cooperation in political, security, and economic fields stagnates for a considerable period after the Ukraine war, the ties in the private sector will play a role in rekindling the flame of bilateral relations.

Russia is planning to produce hydrogen from the Sakhalin gas fields and export it to Northeast Asian countries. South Korea is also pursuing a policy of producing and importing hydrogen from overseas to achieve carbon neutrality. This is a promising venture as the interests of both countries align. Furthermore, in the era of the Fourth Industrial Revolution, Korean and Russian companies are actively pursuing cooperation in fields such as Artificial Intelligence (AI), drones, mobile phones, and semiconductors. There are areas where Korean companies seek to adopt technologies through joint research in fields where Russia has strengths, and conversely, areas where Russian companies require cooperation with Korea. Siberia, affected by global warming, is transforming from a land of permafrost into a food supply base. Various Korean companies have advanced into Siberia to engage in large-scale mechanized agriculture.

Russia has pursued its Eastern Policy for the past decade, but it has not received a strong response from Northeast Asian countries. The Russian government and corporations have not made significant investments in the Far East region. The Russian Far East is a region with an unusually low population density due to its harsh climate. After the Ukraine war concludes, Russia may dynamically pursue its Eastern Policy. Russia needs to find an escape route as its oil and gas exports to Europe drastically decline. China will be its largest partner. This will be welcome news for China, which has invested globally in energy resources for decades. South Korea will also be an important partner. Having already imported LNG from Sakhalin-2, South Korea is in a position to secure additional Russian gas at reasonable prices. If the Ukraine war concludes in the near future, it is projected to bring unexpected benefits to Korean companies.■

<References>

Park Min-ho. 2021. "North America's Largest Oil Pipeline Project, 'Keystone Pipeline,' Officially Halted." <E-net News>, July 16.

Yoon Eun-sook. 2022. "Shale Oil in the United States Makes a Brilliant Comeback? Attention Grows Amidst Oil Prices and Ukraine Conflict." <Aju Business Daily>, February 21.

Lee Ji-young. 2022. "European Natural Gas Surges 60% Intra-day Due to Russian Sanctions... Record High." <JoongAng Ilbo>, March 2.

[1] Lee Ji-young. 2022. "European Natural Gas Surges 60% Intra-day Due to Russian Sanctions... Record High." <JoongAng Ilbo>, March 2.

[2] Park Min-ho. 2021. "North America's Largest Oil Pipeline Project, 'Keystone Pipeline,' Officially Halted." <E-net News>, July 16.

[3] Yoon Eun-sook. 2022. "Shale Oil in the United States Makes a Brilliant Comeback? Attention Grows Amidst Oil Prices and Ukraine Conflict." <Aju Business Daily>, February 21.

■ Author: Baek Ju-hyunAdvisor for Russian Affairs at Law Firm Bae, Kim & Lee. Former Ambassador to Kazakhstan, holds a Ph.D. in History from the Diplomatic Academy of Russia.

■ Managed and Edited by: Lee Seung-yeon_EAI 연구원

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